Mouchel has revealed it is closing 14 offices and making 450 more staff redundant after announcing a collapse in profits caused by a dramatic drop in public sector workload.
The firm has announced that revenue for the six months to 31 January was a disappointing £270M, compared with £312M for the same six months of last year.
The drop, which was mainly a consequence of government cuts to highways spending, meant that profit before tax and exceptional items collapsed 73% to £4.1M. Operating margin has declined from 6.3% to 3.3%. Earnings per share showed a loss of 1.1p and the firm said no interim dividend will be paid to shareholders. In 2010 it paid out 2.25p per share.
The firm said that because of the fall in revenue it has had to focus on cutting its cost base and conserving its cash resources.
As a result, it has reduced staff from 10,200 at 31 July 2010 to 9,700 at 31 January 2011, with approximately 450 further redundancies anticipated before April 2011.
Figures provided for NCE’s Consultants File, published this week, state total staff numbers as 9,122.
The firm said that the staff cuts would help lower its annualised cost base by £32M. The firm also expects to save over £1M a year from the closure of the 14 offices.
That move has cut office space by 7%, and the firm said it anticipated reducing occupied space by another 13% over the next twelve months leading to further annualised savings of over £2M.
The firm has taken its biggest hit in its highways business. Revenue for the first half of 2010/11 for the highways business was £96M, a 22% reduction on the comparative period last year. This reduction in revenue led to an 82% decline in underlying operating profits to £1.7M as the firm initially delayed its decision to release staff until the extent of the deferral in workload became clear.
Its UK infrastructure services business, which includes its Managing Agent Contractor contracts (MACs) for the Highways Agency, saw activity levels down 20% and underlying operating profits halved. The impact on demand for consultancy services was more severe as clients deferred discretionary work, resulting in a 30% revenue decline and the business suffering a loss.
To counter this decline in workload the firm has cut headcount by 14% to 3,488 from the level at January 2010. It said further reviews continue at a local level to “ensure resources are matched to immediate client workloads”.
It has won some work, however. In the six month period it has mobilised the new Area 1 and Area 13 MAC contracts as part of its EnterpriseMouchel JV with Enterprise. Its TranServ JV with Balfour Beatty has secured extensions to its North West Scotland Operating Company contract to May 2012 and a further extension to its City of Westminster contract to September 2014 is being negotiated. The firm has been awarded contract extensions by Shropshire County Council to March 2013, Wiltshire County Council to May 2012, the London Borough of Southwark to April 2012, the London Borough of Hillingdon to July 2013 and by the Highways Agency for its Project Support Framework to April 2011. The A11 Thetford Bypass scheme, which it won with Birse, has now been given the go-ahead.
Overseas, it has also won two five-year highway maintenance contracts in partnership with Downer in Western Australia.
Other divisions are also struggling.
The management consulting division reported revenue down 10% at £27.3M. Headcount at January 2011 was down 22% at 358 compared with the position at the end of January 2010.
Revenue from its regulated industries was £41.5M, down 12% on the previous year, leading to a sharp reduction in operating margins. The water business fell into loss in the first six months after its AMP 5 business ramped up more slowly than expected, despite a 10% increase in revenue. Engineering and environment workloads fell by about 30%, principally as a result of the reduced activity of its highways business, and also reported a loss. Its business in the rail sector, from which it substantially withdrew in 2009/10, saw a 40% reduction in revenues as a number of contracts were completed. Energy and insurance showed an improved performance. The Middle East also saw a reduction in revenue compared with the first half of 2009/10, but returned to profit on a reduced cost base.
In response to lower demand for its consultants it has reduced its headcount by 13% over the last 12 months to 1,643 at January 2011.
“It has been another challenging period for Mouchel,” said chief executive Richard Cuthbert. “Our clients have been impacted by the tough economic climate, leading to cuts in capital and maintenance programs and a decline in spending, which has negatively affected our performance.”
Cuthbert added that spending several months fighting takeover bids had also been an unwelcome disruption to the business. The firm today confirmed that it had rejected approaches from Interserve and Costain.